Now Retailers Are Battling Honor-All-Wallets

The latest skirmish between merchants and the major card brands has been brewing behind the scenes for months but went public early last month when an advocacy group for big-box retailers charged that a new twist on network rules is slowing the progress of mobile payments.

The controversy involves regulations long maintained by American Express Co., MasterCard Inc., and Visa Inc. that require merchants to accept all of their cards if they accept any of them.

Now the networks are extending these so-called honor-all-cards rules to digital wallets, hindering the emergence of lower-cost services and discouraging merchants from switching on near-field communication technology at their terminals, says the Merchant Advisory Group, a Minneapolis-based organization that represents more than 100 retail and travel companies.

MAG members include major chains like Wal-Mart Stores Inc. and Target Corp. Wal-Mart is rolling out a proprietary wallet and Target is rumored to be developing one.

The new honor-all-wallets or honor-all-devices rules require merchants that accept contactless Visa cards, for example, to accept any NFC wallet that supports cards of that brand. The same requirement would hold for wallets using other technologies, such as mag-stripe emulation or quick-response codes.

It is unclear, however, whether the new rules have yet been codified along with other network rules, nor is it clear whether they are already in effect or have a later effective date. Visa did not respond to a request for comment. MasterCard issued a statement that did not directly address its acceptance rules for wallets.

“For quite some time, we’ve heard rumors that bulletins have been circulated by the networks, and [lately] brand representatives have confirmed it,” says Mark Horwedel, chief executive for the MAG. The card networks typically announce rules via bulletins they send to financial institutions that act as issuing or acquiring banks, or both. The bulletins are not usually released publicly.

The merchant group says honor-all-wallets will force merchants to accept digital wallets issued or sponsored by competing retailers, potentially giving rivals access to proprietary customer data, as well as require them to accept devices whose security or privacy protection may be dodgy.

“Many large retailers feel that Amazon is their greatest competitor, so what would happen if Amazon suddenly launched a digital wallet that was enabled by the card brands?” asks Rick Oglesby, principal at consultancy AZPayments Group and senior analyst at Double Diamond Payments Research, in an email message. “Merchants would certainly want the ability to choose whether or not that wallet could be used in their stores.”

The rules could also hamper competing wallet providers that offer low-cost alternatives such as PIN-debit or automated clearing house services, the MAG says. Under the rules, merchants would not be able to accept only these wallets, forcing little-known newcomers to compete with the brand power of the national systems.

While the MAG represents many of the nation’s biggest merchants, Horwedel argues the issue is important for corner-store shopkeepers, as well. “If one were to explain this to most merchants, they’d have the same concern as the big merchants. It’s just the big merchants uncover these issues first,” he says.

This latest tussle comes in the wake of battles between merchants and the networks over issues stemming from the implementation of EMV chip cards at the point of sale. Merchants have complained of certification backlogs that prevent them from activating the EMV function, leading them to default to mag-stripe swipes and exposing them to liability for counterfeit card chargebacks. The chargeback issue has already led to a lawsuit seeking class-action status.

But Oglesby says the battle over the new honor-all-wallets rules could have long-lasting, and serious, effects, possibly including yet more litigation.

“This battle isn’t going away any time soon,” he says. “In the meantime, we’re likely to see merchants continue to build their own, proprietary solutions (such as Walmart Pay and Target Pay) while continuing to battle the networks in-store, through public opinion, and through legal channels.”

Nonetheless, MasterCard in its statement strikes a conciliatory tone.

“MasterCard recognizes the importance of providing flexibility to payments participants, especially merchants who seek to improve the consumer shopping experience,” the network statement says. “We look forward to continuing to work with our merchants and issuers alike to ensure our rules are aligned with current trends and advance next-generation technology.”

—John Stewart